Building economically viable
enterprises through strong equity participation combined with management and
technical expertise and support

By SHABBIR
H. KAZMI
Dec 26 - Jan
01, 2006

The Aga Khan, since assuming the office
of Imamat in 1957, has been concerned about the well-being of Muslims,
particularly in the face of the challenges of rapid geopolitical changes. Over
the four decades there have been major political and economic changes around the
world. The Aga Khan has adapted the complex system, pioneered by his
grandfather, to a new world of nation-states, which even recently has grown in
size and complexity following the newly acquired independence of the Central
Asian Republics of the former Soviet Union.

The keen interest of the Aga Khan in
Pakistan can be gauged by the large number of agencies involved in various
economic spheres. A quick review of the work done in Pakistan shows not only
diversity of programs but the aim remains improving the quality of life of
people, be it education, healthcare or employment generation. The underlying
objectives are to alleviate economic and social exclusion, diminish the
vulnerability of poor populations and reduce poverty. All the programs aim at
helping people becoming self-reliant and eventually gaining the skills needed to
graduate to the mainstream markets.

The Aga Khan Development Network (AKDN)
operates in more than 20 developing countries around the globe. The programs
were previously distributed among the Aga Khan Fund for Economic Development (AKFED),
the Aga Khan Foundation (AKF) and the Aga Khan Trust for Culture (AKTC), are now
overseen by the Aga Khan Agency for Microfinance (AKAM). It is a not-for-profit
agency created under Swiss law. Its headquarters are located in Geneva,
Switzerland. AKAM is governed by an independent Board of Directors. The Chairman
of the Board is His Highness the Aga Khan. The Agency's partners include the
Canadian International Development Agency (CIDA), Kreditanstalt fur Wiederaufbau
(KfW), International Finance Corporation (IFC), Norwegian Trust Fund, the
Japanese Social Development Fund, the Dutch Trust Fund, US Agency for
International Development, the Microfinance Investment Support Facility for
Afghanistan (MISFA) and the European Commission.

Wherever the AKDN works the focus is
health, education, culture, rural development, institution-building and the
promotion of economic development. It aims at improving living conditions and
opportunities for the poor, irrespective of their faith, origin or gender.
Founded and guided by the Aga Khan, the AKDN brings together a number of
development agencies, institutions, and programs that work primarily in the
poorest parts of Asia and Africa. AKDN is a contemporary endeavor to realize the
social conscience of Islam through institutional action.

AKDN agencies operate in social and
economic development as well as in the field of culture. The Aga Khan Foundation
(AKF), including the Aga Khan Rural Support Programs and the Mountain Societies
Development Support Program, the Aga Khan University (AKU), Aga Khan Heath
Services (AKHS), Aga Khan Education Services (AKES), and the Aga Khan Planning
and Building Services (AKPBS) operate in social development. The Aga Khan Fund
for Economic Development (AKFED) with its affiliates the Tourism Promotion
Services, Industrial Promotion Service, and Financial Services, seek to
strengthen the role of the private sector in developing countries by supporting
private sector initiatives in the development process.

The Fund and the Foundation also
encourage government policies that foster what the Aga Khan first called an
"enabling environment" of favorable legislative and fiscal structures.
The Aga Khan Trust for Culture (AKTC) coordinates the cultural activities. Its
programs include The Aga Khan Award for Architecture, the Historic Cities
Support Program, and the Education and Culture Program. The Trust also provides
financial support for the Aga Khan Program for Islamic Architecture at Harvard
University and the Massachusetts Institute of Technology in the United States.

While each agency pursues its own
mandate, all of them work together within the overarching framework of the AKDN
so that their different pursuits can interact and reinforce one another. Their
common goal is to help the poor achieve a level of self-reliance whereby they
are able to plan their own livelihoods and help those even more needy than
themselves. A central feature of the AKDN's approach to development is to design
and implement strategies in which its different agencies participate in
particular settings. To pursue their mandates, AKDN institutions rely on the
energy, dedication, and skill of volunteers as well as remunerated
professionals, and draw upon the talents of people of all faiths.

The Aga Khan Fund for Economic
Development (AKFED) is an international development agency which promotes
entrepreneurship in the private sector in specific regions of the developing
world. A for-profit institution, the Fund helps in building economically viable
enterprises through strong equity participation combined with management and
technical expertise and support. AKFED companies promote sustainable economic
development in South and Central Asia and sub-Saharan Africa with projects in
industry, tourism, and financial services.

AKFED operates local companies in three
areas, which are industry, tourism and financial services. The industrial
development sector includes companies ranging from agro-industry to metal
products, printing and packaging, telecommunications and power generation. AKFED
promotes tourism by building and managing hotels and lodges that contribute to
economic growth in an environmentally sensitive manner. Financial institutions
in AKFED's portfolio include banks, insurance and property management companies
and micro-credit programs.

AKFED operates as a network of
affiliates with more than 90 separate project companies employing over 15,000
people and controlling assets in excess of one billion dollars. The Fund is
active in 15 countries that include Bangladesh, Burkina Faso, Congo, Cote
d'Ivoire, India, Kenya, Madagascar, Mali, Mauritius, Niger, Pakistan, Senegal,
Tajikistan, Tanzania, and Uganda. There are also affiliates in Canada, France,
and the United Kingdom that provide resources and support to the Fund's
activities in the developing world.

Whether in industrial development,
tourism promotion or financial services, AKFED looks for projects that are not
only economically sound, but also have long-term development potential for the
country and the region. Its approach emphasizes the development of human
resources, particularly management, technical, marketing, and financial
expertise. The Fund brings together international investment and know-how with
local experience and entrepreneurial skills, creating partnerships among local
institutions and individuals, leading multilateral development agencies and
development banks. AKFED plays a catalytic role in stimulating and mobilizing
investment in the developing world. It facilitates participation by individual
and institutional investors in national privatization programs and helps to
create an enabling environment for private sector initiative.

Through direct participation in the
management of companies in which it invests and through partnerships with
institutional and individual investors, both domestic and foreign, AKFED builds
strong local companies. This approach, combined with AKFED's sensitivity to the
impact of its investments on the human and physical environment, helps to foster
a sound and socially responsible private sector in the developing world. AKFED
emphasizes equity investment, including participation in privatization programs
and floatation of its companies' shares on national stock exchanges. This
emphasis on equity investment demonstrates the highest level of investor
commitment.

The Fund helps group companies to
mobilize resources, identify management and staff, and structure finance and
reporting systems, thereby ensuring the most appropriate manpower development
and the application of relevant technologies. In addition to its own capital
committed, AKFED brings together foreign and local partners to bridge the gap
between support from government or international development agencies and the
needs of local private entrepreneurs. In its investments, AKFED takes account of
the impact on the human environment as well as the effect on the physical
surroundings.

In its efforts to encourage the
creation of strong and efficient capital markets, the AKFED provides
institutional umbrella for banks, insurance companies, property owning and
management companies and leasing companies in East Africa and South Asia. Many
of these companies, including some which were founded as small self-help
companies in the first half of this century by the present Aga Khan's
grandfather and predecessor, Sir Sultan Mahomed Shah Aga Khan, have over the
years developed into leading institutions quoted on national stock exchanges.
The New Jubilee Insurance Company, for example, has grown into one of Pakistan's
largest insurance companies and is quoted on the Karachi Stock Exchange.

HABIB BANK

On December 29, 2003, AKFED gave the
highest bid of Rs. 22. 409 billion for acquiring 51% shares along with
management control of Habib Bank. "The privatization of Habib Bank is a
historic and the country's biggest strategic sale in the financial sector and we
expect that the new buyer will improve the bank's network in Central Asia,
Europe and other parts of the world to turn the bank into a prestigious
Pakistani Bank," Dr. Abdul Hafeez Shaikh stated this while addressing the
ceremony held for the transfer of the management of Habib Bank to Aga Khan Fund
for Economic Development (AKFED). Addressing on the occasion Shaukat Aziz said,
"Habib Bank is an icon of our structural reforms and we are handing over a
jewel of our national assets with a bit of heavy heart and now the greater
responsibility lies with the new management".

Habib Bank is Pakistan's second largest
commercial bank, having a countrywide and international branch network. The bank
has full service licence covering commercial, retail banking, consumer and
investment banking activities in Pakistan and most of the other countries where
it is present. It has an extensive domestic network consisting of 1,425 branches
with a market share of approximately 20%. It also operates a large international
network of 48 branches in 25 offshore locations spread over Europe, the Middle
East, Far East, Asia, Africa and the United States. It also operates three
wholly owned subsidiaries namely Habib Bank Financial Services in Pakistan,
Habib Finance International in Hong Kong and Habib Finance Australia. It is also
partner in two joint ventures namely Habib Nigeria Bank and Himalayan Bank. In
addition, the Bank owns 90.5% shares in Habib Allied International Bank Plc, a
bank incorporated in the UK.

MICROFINANCE

The Aga Khan Rural Support Program (AKRSP)
has been running microfinance initiatives since 1982 in the Northern Areas and
Chitral district of Pakistan. By 2000 a total of Rs 429 million (over US$10
million) had been saved by members of more than 3,260 village organizations,
with more than US$2 million disbursed in credit each year. The First Micro
Finance Bank of Pakistan started operations in May 2002, initially taking over
AKRSP's credit and savings activity, and began a program of urban micro credit
in Rawalpindi and Karachi in 2003. It has gradually expanded to other rural and
urban areas in the country, with 25-branch nationwide network. The Bank reaches
out to disadvantaged populations which are currently not able to receive
financial services from commercial banks. Specific emphasis is placed on
vulnerable groups, women in particular. Savings are mobilized from individuals,
groups and institutions. The Bank plans to establish about 30 branches by the
end of the fifth year of operations. Mobile banking services are being provided
gradually from all branches to expand outreach. The First Micro Finance Bank of
Pakistan has earned "Honorable Mention" in the CGAP 2004 Financial
Transparency Award competition sponsored by the World Bank-affiliated
Consultative Group to Assist the Poor (CGAP).

It is expected that the financial
institutions working under the guidance of AKFED will not only emerge as role
model but will also provide other institutions an opportunity to benefit from
their experience. It is necessary to reiterate at this point that for
strengthening any economy, the strength of financial institutions is of prime
importance.